The Issues Surrounding Offshore Banking

Every few years, when the government needs money and taxation isn't an option, politicians complain and point fingers at offshore banking havens claiming that they are cheating them out of millions and millions in tax revenues. They come up with proposals to combat the problem, yet it never seems to make the problem go away. The argument they make, which is somewhat valid, is that the missing revenue must be made up by the non mobile business, one's that aren't global, hurting the small businessman, the middle class and the poor. In other words, we must pay the difference. However, aside from this, is offshore banking such a bad thing? In reality it isn't.

Offshore banking, it has been shown, seems to help the neighboring countries by making them much more competitive with their own banking systems. France, a high tax country, has indirectly benefited by having Switzerland and Luxembourg at its borders. French banks have been forced to tone up their services and offer incentives. Offshore havens also have forced many governments to take a long, hard look at their own tax policies and codes. Russia has always had a problem with tax compliance. By simplifying their tax code and making tax cuts, they've actually increased tax revenues a hundredfold. The core issue here is tax avoidance and not tax evasion. Tax avoidance is legal, while tax evasion isn't. Many companies have spent millions on lawyers and accountants to pay less tax. Tax loopholes allow this. If you could pay less tax legally wouldn't you want to do the same? The real issue here is the fear that another country will end of with the extra revenue. The economy is global. Countries are competing with other countries for business. Many of the tax havens are reaping in the benefits. If one closes, someone else will open up for business.

In addition, old arguments as to that of money laundering, pandering to dictators and terrorists isn't applicable today. Most reputable offshore banks have adopted a know your client attitude and have made it more difficult for criminals to operate. No one these days wants to incur the wrath of the more powerful nations, especially if it is found out that some sort of illegal or terrorist activity was funded through that country's banks. Also many havens, although maintaining there secrecy laws, are collecting a withholding taxes on non-citizens and are sending the proceeds to the citizens country of origin. Finally the larger countries aren't innocent either. The United States has Delaware, providing companies with loopholes and countries such as Britain, while within their rights to tax non citizens, don't do so, because doing it would induce them to leave and would result in undermining the British economy.

So the bottom line is that countries should look within themselves to streamline their tax codes and offer incentives to the individuals and companies that make up the global economies. Fiscal responsibility is the first step. The 2nd is to make tax rates fair for all. If done ,businesses will stay put and keep their assets in their native lands.